FILE - In this Aug. 17, 2012 file photo, alleged counterfeit $100 U.S. dollar notes sit on display during a media presentation in Lima, Peru. Unlike most other counterfeiters, who rely on sophisticated late-model inkjet printers, the Peruvians generally go a step further _ finishing each bill by hand. (AP Photo/Karel Navarro, File)

Only a Band-Aid Stops IRS from Stifling 501(c)4 Free Speech

In late 2013 the Internal Revenue Service, already under criticism for a scandal that involved targeting conservative non-profit groups, proposed changing the rules that govern so-called 501(c)4 organizations – named after the portion of the tax code that authorizes their existence. Unlike many non-profits which fund themselves with tax deductible contributions, 501(c)4 groups can’t offer a tax benefit to donors, but they are allowed to keep the identity of their donors secret and they are allowed to speak out more explicitly than other non-profits when it comes to some public policy matters.

That freedom to speak more openly and specifically about public policy troubled the IRS. Under proposed rule 134417-13, the IRS seeks to narrowly constrain non-profit organizations incorporated as 501(c)4s by muzzling them when it came to public policy issues. “The promotion of social welfare does not include direct or indirect candidate-related political activity,” the proposed rule reads in part.

Already non-profits cannot tell people to “vote for” or support or donate to candidates, whether by name or by reference. But 501(c)4 groups can focus on issues, and can urge the public to contact candidates for office or officeholders about a policy issue. It is that kind of work that 134417-13 would put an end to. Additionally, the rule would specifically prohibit non-profit groups from conducting non-partisan voter registration drives.

“[F]or well over half a century, the IRS’s regulations have recognized that §501(c)(4) organizations can lawfully and appropriately engage in substantial levels of political activity—as long as it is less than 50 percent of the organization’s activities,” wrote Hans von Spakovsky, a former Federal Election Commission and U.S. Department of Justice official who now conducts research at the Heritage Foundation, of the proposed rule.

After being inundated with mostly negative feedback about the proposal, the IRS in 2014 delayed implementation of the rule. But that wasn’t enough for Congress. In the year-end spending bill passed in December 2015, Congress prohibited the IRS from fully adopting or implementing 134417-13, but only until September 30, 2016.

Section 127 of Division E of HR 2029 declares:

“[N]one of the funds made available in this or any other Act may be used by the Department of the Treasury, including the Internal Revenue Service, to issue, revise, or finalize any regulation, revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code of 1986”.

But that free speech protect expires at the end of September.

The House has passed HR 5485, which extends the same language for another year – until the end of September 2017. But that legislation has not yet cleared the Senate according, the official legislative website of Congress.

Just why Republicans – who control Congress – included an expiration date on their efforts to stop the IRS from muzzling the free speech rights of some non-profit groups is not clear. Certainly as long as the GOP has comfortable majorities in both chambers, the language should be able to get into annual appropriations bills without any problem. But a more permanent fix to the problem would be to clarify that “social welfare” as it appears in the tax code, does not exclude speech or activities related to government activity, public policy, or policy and political debates.

Organizations that stand to lose the most from the IRS’s imposition of this restriction range from Heritage Action for America, which operates as a 501(c)4, to Americans for Prosperity, which has local chapters across the country that advocate for free market principles in state and federal policy.

Until Congress permanently clarifies the meaning of “social welfare” – which von Spakovsky argues should include policy debates and general election participation in a republican democracy – a band-aid fix is all that prevents the IRS from slapping a free speech muzzle on some non-profit organizations.

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Brian Sikma

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